The Impact Of The FTA Agreement On South Korea’s Foreign Trade

Nowadays, Globalization and Regional Economic Integration play an important part in the world’s economic development because of its coexistence and common development. In the world’s economic integration progress, establishing a Free Trade Area as one of the most important sectors becomes more necessary than forever not only because under the framework of FTA, member countries will grant each other preferential trade to strengthen exchanges and cooperation, but also promoting common development among them. Moreover, due to the establishment of a Free Trade Area involving the small countries which have simple conditions will give them a chance of rapid development. Following the trend of the world, actively establishing a Free Trade Area, South Korea has established a Free Trade Area with 11 countries or economies. Evenly, South Korea still has some FTA’s sectors negotiation process expected to participate in future, it’s expected that South Korea will continuously expand its scope.This article has chosen Chile and Peru-two countries which has signed FTA agreement with South Korea as research subjects. By using the gravity model, his paper analyzes the economic effects from the view of economic openness, the degree of intra-industry trade index. The results pointed out that South Korea’s economic openness is higher than Chile and Peru, even that the two countries’ economic openness have increased gradually by time. Among South Korea, Chile and Peru exist an inter-industry relationship. South Korea has imported mineral-based products from Chile and Peru, and vice-verse, the two countries has imported industry products from South Korea such as cars, trains and televisions. Being FTA’s member countries, South Korea can ensure a stable source of raw materials importing from Chile and Peru, and the two countries can also ensure high quality industrial products importing from South Korea. Moreover, the gravity model’s result shows that, the relationship of the bilateral trade volume growth of South Korea as well as its trading partners with the GDP growth of these trading partners is positive correlation, and with the distance of these trading partners is inverse correlation. Specially, each of South Korea’s trading partners’GDP increases 1% will lead to the bilateral trade volume increases 0.78%, and each of the above distance increases 1% will lead to the bilateral trade volume decreases 0.705%. Logarithm of the distance between Korea and its each of trading partners increases 1%, and the logarithm of trade value is down to 0.705%. According to the trade potential of analysis, we can see that among the countries which Korea has signed FTA agreements or in negotiation progress, Peru’s trade potential is 1.31, Colombia is 1.54, Myanmar is 1.33, Philippines is 1.66, Indonesia is 1.27, Thailand is 1.71 etc. Peru, Colombia and some countries in ASEAN which signed FTA agreement have reached to promote the bilateral trade agreements as well as to promote economic development.About policy recommendations, first of all, it’s necessary to expand the import and export activities between the countries that have signed the FTA. Secondly, the countries in FTA’s negotiation progress, FTA provisions loose, is conducive to sign agreements as soon as possible. Moreover, at the level of strategic positioning, it’s important to pay more attention to regional economic cooperation in East Asia. Finally, in order to improve the SMEs’FTA utilization, the government needs to actively promote FTA policy, specifically sets an FTA’s specialization system as well as simplify certificating certificate of origin activity.